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Cannabis oil – Regulatory Challenges and the Rising Market

David Little's picture
Published: 06/08/19 - Country: United Kingdom
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In recent years, cannabidiol, more commonly known as CBD, has gained increasing popularity in the medical field as the cannabis plant extract shows promising results for a whole host of medical conditions. From treating cancer and reducing seizures in epileptic children to helping muscle spasms in patients of multiple sclerosis and managing chronic pain, consumers and businesses are increasingly fascinated by the rapidly increasing value of CBD, both medically and commercially.

Cannabidiol is an oil which comes from the cannabis plant and contains tetrahydrocannabinol (THC), which affects the mind and mood (i.e. the psychoactive component in cannabis that produces a ‘high’). Cannabis is a Class B drug meaning it is illegal to possess, and anyone found with the drug is criminally prosecuted.

Cannabidiol (CBD) has been legal in the United Kingdom since 2016, and it is recognised as a medicine. Medicinal cannabis is now available on prescription following several high-profile cases, including young epilepsy sufferers Alfie Dingley and Billy Caldwell, whose conditions appeared to be helped by cannabis oil.

The CBD market in the UK

The UK’s CBD industry has seen a staggering increase in the last 3 years, since the government passed a law in 2016 allowing the use of CBD as a legally recognised medicine. Figures show that in the last three years, cannabis oil has contributed in excess of £100 million per year to the British economy. Over the next decade, the CBD market is forecast to reach £16.5 billion according to the Financial Times.

The cannabis industry in the UK is already very large and is set to keep growing. S&P Global’s latest report estimates that the growth in legal cannabis will outpace other consumer goods sectors, such as packaged food, soft drinks, alcohol and tobacco (see the figure below).

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The hopeful promise of such a staggering increase in the CBD market over the next few years has enticed large companies such as Coca-Cola to express an interest in producing CBD products. Businesses and investors investing in this novel(?) product hope to reap the benefits of taking a risk in the early market once CBD oils and other cannabis-based products become mainstream.

In Europe, the CBD market continues to grow leading analysts to project a similar pattern in the UK. According to the Brightfield Group, Europe’s CBD market, currently estimated at $318 million, is estimated to grow over 400% through 2023. This is leading analysts to project a similar pattern in the UK; Brightfield forecast that the CBD market in the UK is set to grown from $76.2million (£57.7m) in 2018 to $440.8m by 2023.

Regulatory Challenges

However, the Home Office’s recent license revocation of one of the UK’s largest hemp farms, Hempen, signals a potential setback for the booming UK CBD industry. Furthermore, EU regulations have changed the classification of cannabis oil. Where CBD was previously classified as a health supplement, the European Food Safety Authority (EFSA) is of the view that CBD should be classified as a novel food: foods which do not have a significant history of consumption. Such categorisation directly impacts and hinders the continued commercialisation of CBD, being sold as a food supplement in health food shops such as Holland and Barrett.

What does this mean for businesses and investors?

As a business owner, it is your responsibility to determine whether any products you sell or make, contain novel foods. The Home Office issues licenses which permit the farming and possession of industrial hemp for a specified commercial purpose. There are controls in place, in order to ensure cannabis is not being misused, for example, accountability for waste products such as THC.

The regulations surrounding the issue of CBD and industrial hemp are continuously changing. Furthermore, Britain’s new Prime Minister, Boris Johnson was one of the first senior Conservative Party politicians back in 2008, to call for the legalisation of cannabis for medicinal use and pain relief. Perhaps, this is an indication that in his new role, Boris Johnson may drive Britain towards becoming a more relaxed regulatory environment for the commercialisation of CBD.

With the UK CBD market in a state of flux, and the potential for a $2.1 billion CBD industry by the end of 2020, it is crucial that businesses owners and investors take advice on how to be a pioneer in the developing CBD market and comply with its evolving regulations.

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David Little's picture

David is an experienced corporate lawyer with over 20 years’ experience, having worked in the City and West End. He advises a broad range of corporate and private clients on acquisitions and disposals, private and public fund-raisings (in particular AIM, Standard List and ISDX) and general company law and company secretarial matters.

David also advises start-ups (particularly in the tech sector) and on joint ventures, LLP and partnership formation.

Much of his work is corporate transactions across a broad range of business sectors, with a particular focus on the technology, marketing and media, sport and leisure, and professional services sectors.  David has worked on a number of high profile transactions on a variety of acquisitions, joint ventures and disposals.  In recent years, he has also gained particular expertise in the oil and gas sector, advising clients on IPO’s and ancillary fund-raisings.

David is well able to understand matters from a client perspective, having spent time working in industry as Group Legal Counsel and Company Secretary for an AIM-listed financial services business, and having served on the board as a Non Executive Director for an AIM-listed financial training company.

His clients value his commercial experience and his commonsense approach to transactions and company law matters.  He is viewed as pragmatic, focused and always accessible.  David also enjoys networking and meeting new and long-standing clients.

Co-authors

Nik Paskevic joined Bishop & Sewell as a Paralegal in the Property department where he gained a wide variety of experience, including acquisition and disposition of freehold/leasehold properties, transfer of equity and refinancing.

Nik graduated from Keele University and prior to commencing his Training Contract he completed the LPC at BPP Law School achieving a Distinction.